Friday, May 16, 2014

Markets rise on mixed data

Dow climbed 44 with buying in the last hour, advancers over decliners 3-2 & NAZ jumped 21.  The MLP index went up 1+ to the 488s & the REIT index rose 2+ to the 299s.  Junk bond funds continued mixed & Treasuries pulled back but the yield on the 10 year Treasury is near a 10 month low.  Oil gained & gold sold off slightly.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLM14.NYM....Crude Oil Jun 14....101.97 Up ...0.47 (0.5%)

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Federal Reserve Bank (FED) of St. Louis Pres James Bullard said the FED is closer to its goals for employment & inflation than at any time in 5 years, helping to warrant its tapering of record stimulus.  “Fed goals are within sight,” Bullard, who doesn’t vote on monetary policy this year, said.  “This helps to justify the FOMC’s tapering of asset purchases,” he said, referring to the FOMC.  FED Chair Janet Yellen said last week that “a high degree of monetary accommodation remains warranted” with indicators for inflation & employment far from the central bank’s goals.  The FED’s preferred gauge for inflation (1.1% in Mar) has been below the its 2% target for almost 2 years.  The 6.3% unemployment rate in Apr compares with the median estimate among FOMC participants for full employment between 5.2-5.6%.  “ The FOMC is much closer to its policy goals than it has been in the past five years,” Bullard said.  FED officials in Apr trimmed stimulus for the 4th consecutive meeting, saying the economy has strengthened after harsh winter weather slowed growth to a 0.1% annual pace in Q1, cutting monthly bond purchases by $10B to $45B & are on track to halt buying in H2.  Policy remains accommodative because “labor markets do not seem to be fully recovered,” Bullard said.  Also, “inflation remains low.”  “While first-quarter GDP growth was weak, growth in coming quarters is still predicted to be robust,” Bullard said, referring to GDP.  “The average quarterly pace of growth in 2014 may still be an improvement relative to 2013,” he added.  The average pace of quarterly growth in 2013 was 2.6%.  He said that the recent pickup in employment is “very encouraging.”  Unemployment will probably fall below 6% by year’s end, setting the stage for the first tightening at the end Q1-2015.  “Inflation may be moving back to target as the committee has been predicting,” Bullard said.  “The FOMC would be ready and willing to get more aggressive if it was required,” including if inflation surged unexpectedly.

Bullard Says Fed Closer to Goals Than Any Time in 5 Years

The Chinese gov ordered lenders to curb interbank borrowing in the latest effort to check growth in the informal shadow-banking industry that threatens to undermine the nation’s financial system.  A commercial bank should limit its interbank borrowing to less than 1/3 of its liabilities, while its lending to another financial firm shouldn’t exceed 50% of its Tier 1 capital, according to the People’s Bank of China (PBOC).  Financial institutions need to better manage the maturity of interbank funding & control liquidity risks, the PBOC said.  Borrowing between financial institutions on the interbank market more than tripled in the past 5 years as part of a web of underground finance that evolved to sidestep government lending restrictions & capital requirements.  It has been estimated shadow banking could be worth $7.5T, shadow banking has made it harder for the gov to curtail debt & shield state banks from rising defaults as the economy cools.  Transactions between banks have allowed them to circumvent regulatory requirements on capital, risk provision & loan-to-deposit limits.  The complex structure through layers of intermediaries had inflated the assets of the industry & is extremely likely to spread risks, the PBOC said.  Interbank assets surged to 21.5T yuan ($3.45T) by the end of last year from 6.2T yuan at the beginning of 2009, the PBOC said.  The increase was almost double the gain of China’s banking assets during the same period.

China Orders Interbank Lending Curbs to Quell Shadow Banking

Applied Materials gave a forecast for fiscal Q3 sales that topped the low end of estimates as it takes market share & demand for display-making machinery rebounds.  Revenue will be $2.24-$2.35B, based on the company’s prediction for sales to be down 5% to flat from the prior qtr.  Analysts were estimating $2.32B.  EPS before certain items will be 25-29¢, compared with an analyst projection of 27¢.  The largest supplier of semiconductor-manufacturing equipment is benefiting from demand for machines used to make flat-panel displays, unlike many of its competitors, which don’t have a presence in the business.  Orders in fiscal Q2 surged to $340M, up from $79M in the preceding qtr as TV-screen makers add capacity.  EPS for fiscal Q2 was 21¢, compared with a loss of 11¢ a year earlier.  Revenue climbed 19% to $2.35B, in line the estimate.  The company is sticking to its 2014 forecast for growth of 10-20% in the market as a whole for machinery used in chip factories, CEO Gary Dickerson said.  “It’s just basically what we see after talking with different customers,” Dickerson said.  “We see a broadening of spending in foundries.”  The stock rose 1.52 (8%).  If you would like to learn more about AMAT,
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Applied Materials Climbs as Sales Forecast Tops Analysts’ Lowest Estimates

Applied Materials (AMAT)

The averages finished higher after starting out lower.  Late day buying did the trick, but volume was not impressive making this move look suspicious.  There is a disconnect between the rally for the Dow & S&P 500 compared with rising bond prices.  Meanwhile, the health of the Chinese economy is not clear & Putin is in a position to be a major mover for the markets.  Have a good weekend while you enjoy paper profits.

Dow Jones Industrials

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